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Wednesday, 19 April 2017

The AmeriKat loves prowling law firm press releases and journal articles right after a judgment is released. The rush to get to publication can often result in unequivocal statements about what the judgment means. As most lawyers know, it is a challenge to ever know what a judgment really means, especially one as long as Mr Justice Birss' latest decision in Unwired Planet v Huawei [2017] EWHC 711. But already, there has been a few pronouncements that when it comes to FRAND in the future we can simply ignore competition law all together. The AmeriKat reached out to a friendly competition lawyer to ask if this was true. Francion Brooks (Bristows) says it is time to dispel some myths…

"First, some background for anyone that missed this development. This is the latest decision in the Unwired Planet cases (see previous Kat reports here) and the first UK judgment to really get to grips with the issue of FRAND. FRAND refers to the obligation on those that own standard essential patents (SEPs) to license those patents on fair, reasonable, and non-discriminatory (FRAND) terms.
The judgment makes a number of important findings on FRAND (see here and here for a summaries), some of which may appear to suggest that competition law will not play a central role in the future:

That Unwired Planet did not breach EU competition law by seeking an injunction prematurely, insisting on a worldwide licence, attempting to impose unfair pricing, and/or bundling SEPs with non-SEPs.

That a FRAND undertaking to ETSI creates a legally enforceable contract upon which any implementer can rely without recourse to competition law and, for example, that a royalty rate may be above FRAND but not breach competition law.

However, although these findings may, at first sight, appear to distance competition law from the assessment of FRAND these legal issues do, in fact, remain entangled for a number of reasons:

1. The conduct of SEP holders in FRAND negotiations can still amount to an abuse of dominance even if, on the facts of this case, Unwired Planet was found not to breach competition law. In particular, the European Court of Justice set out a clear framework in Huawei v ZTE for the approach to be taken by the parties to FRAND negotiations (see the detail here and here) and as to when injunctions will be available under EU competition law. Birss J has found that this framework should be applied fluidly, but it seems very likely that a substantial departure would be argued to be an abuse of dominance. In addition, Birss J himself recognised that a licence offer far above FRAND which disrupts or prejudices negotiations would engage the EU competition law on excessive pricing. (I also wonder whether competition law might bite on other (less extreme) licence offers above FRAND…).

2. Competition law will remain an attractive (and worthwhile) line of defence/attack for many implementers facing infringement proceedings, even if it is possible to enforce FRAND separately on contractual grounds. Where an SEP holder refuses to grant a licence on FRAND terms, it can lead to patent ‘hold-up’ meaning that an implementer might be blocked from accessing the market. This gives rise to some robust competition law arguments, not all of which were put to the judge in this case, and which other defendants may seek to rely on in the future. The competition law rational of these issues is dealt with to some extent in the Commission’s competition law guidelines on standardisation.

3. The European Commission, along with other competition authorities across the world, continues to be alert to FRAND, particularly in relation to ICT and telecommunication standards. For example, just last week the Commission launched a consultation on its proposed Communication which aims to create a smooth, practicable and fair market system for SEP licences, including guidance on the enforcement of FRAND. SEP holders and implementers would be wise to take heed of any guidance as the Commission has been known to bring enforcement action on FRAND issues itself (resulting in Samsung offering commitments and an infringement decision against Motorola in 2014)."

4 comments:

The statement "That a FRAND undertaking to ETSI creates a legally enforceable contract upon which any implementer can rely without recourse to competition law and, for example, that a royalty rate may be above FRAND but not breach competition law" is not correct (and the latter part does not make sense to me).

It is correct to say that a unilateral offer which is FRAND and which is given by a holder of an SEP to an SSI is an enforceable undertaking giving rise to a contract upon acceptance (which seems to be the case under French law too). There is no contract until acceptance. To say that there is no recourse to competition law misunderstands what Birss J. was saying, which was no more than the competition law enquiry need only be limited to whether the offer was FRAND (either that or [89] of the judgment is meaningless). Further Birss J. unconditionally accepted that competition law and FRAND are bound together (see [94] of the judgment).

In relation to [806(3)] of the judgment I am unable to find any basis in the judgment for the statement "The boundaries of FRAND and competition law are not the same. A rate may be above the FRAND rate but not contrary to competition law." indeed [155] of the judgment seems to say or at least accept the opposite.

The judgement is complicated, and I would not want to assume how relevant the competition aspects would be for any other case. Clearly very subtle points lead to dominance and abuse of the dominant position, and I suspect the CJEU would have been more likely to find abuse of a dominant position based on the same facts.

The UK courts are probably going to be a bit shy of making competition laws a normal part of IP disputes, but I suspect the CJEU will want to develop that case law.

I experienced an EC-inspired nightmare the other night. In search of a new phone I found I had a choice of the SEPPhone-1 or... another SEPPhone-1 in a slightly different shade of beige. So I paid my $3000, and headed off to find a carrier to which I could connect my brand new SEPPhone. The sole provider, a monopolistic national carrier, was able to offer me a GSM/GPRS service with a maximum data rate of a few Mb/s for $10/MB downloads, so I signed up. I was soon broke and destitute.

Meanwhile, back in the Real World(TM) (where, one presumes, Justice Birss lives) I have a choice of a dizzying array of handsets, running at least three different operating systems. And then I have a choice of numerous providers, with myriad incomprehensible plans, that offer download speeds up to more than 100Mb/s, and many GB of data each month for the less than I spendon coffee in a week. Frankly, I could be happy with less choice!

I keep waiting for somebody to explain where the market failure is here, or why the EC is so obsessed with alleged abuse of SEPs in relation to ICT and telecommunications standards. Contrary to what this article states, 'other competition authorities across the world' (with a couple of obviously politically-motivated exceptions in Asia) are not greatly concerned about these issues. Here in Australia I was personally involved in a matter where we were unable to get the local regulator remotely interested in what we regarded as coercive behaviour by video-coding-related SEP holders. Throughout most of the world it is, in reality, a total non-issue.

Once Brexit is a done deal, and the UK no longer cares what the EC thinks about these things, you will be One Of Us, too!

Justice Birss in para 156 states "If there is only one set of true FRAND terms for a given situation then a court will be able to hold parties to their obligations arising from the FRAND undertaking. Both parties would be entitled to insist on FRAND terms and neither would be entitled to insist on anything other than FRAND terms." The rationale here seems to be promotion of certainty among the contracting parties. But then he dissolves this certainty by saying that "A rate may be above the FRAND rate but not contrary to competition law". So, does this imply that a royalty which is above or below FRAND is also in effect FRAND (although the terminology might change, effect remaining the same)? In effect, does this mean that FRAND is a range and not one set of terms (which is essentially what was put forward by Judge James Robart in Microsoft Corp. v. Motorola).

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